Business Auto Loans

If you need a reliable vehicle for your business, a business auto loan is a great way to finance your equipment needs. Whether you need a car, truck, bus, or other type of vehicle to operate your business, auto loans often have low interest rates and long repayment plans.

Business auto loans are an affordable way to subsidize a potentially large business expense. Commercial vehicles can be used to transport or deliver goods, provide services to customers, and complete a variety of other tasks.

When you purchase a commercial vehicle, you should think of it as an investment in your business. Fortunately, in most cases, business vehicles act as collateral for business auto loans. Though financing is always subject to credit approval, this self-collateral setup for commercial vehicles makes business auto loans easier to get and pay back than other small business loans.

How do I get an auto loan for my business?

For some business owners, cars, trucks, vans or buses are needed to operate the business. Though commercial vehicles can be expensive, auto loans are affordable and considered less risky to lenders, which is why they have good low-cost interest rates.

There are two options for your commercial vehicles: buy or lease. If you plan to modify the vehicle or you want to own the automobiles outright after you’ve repaid your auto loan, purchasing the vehicle is your best option. If you want newer cars and your modifications to them can be removed at the end of your ease term, leasing cars is another option.

Before you apply for a business auto loan, consider your options and look at your monthly business expenses to determine whether you can afford the monthly payments on your vehicle loan.

In many cases, lenders will want to see your personal credit report and a year or two of your business’ financial history, to assure that you can make your scheduled monthly payments. If you decide that you’re able to afford a business auto loan, you can apply for a loan through a bank or lender.

What are the requirements for a small business auto loan?

Lenders will examine your personal credit score and your business history to help determine your ability to repay an auto loan over time. They will want to make sure you have enough annual revenue to repay your debt.

The amount of your auto loan will depend on the cost of the commercial vehicle. Most auto loans cover the value of the automobile. The term length of your repayment plan varies depending on the type and condition of the vehicle you seek to purchase.

On average, auto loan interest rates vary from 3-10% in the U.S. Your annual percentage rate (APR) depends on your credit history, loan amount, term, and state of residence. Bank loans are often on the lower end of the spectrum depending on your terms and credit score. Other types of lenders can offer higher interest rates.

How to find the best auto loan for your business

In addition to comparing interest rates and auto loan terms, consider the basic requirements for the vehicle loans when exploring your options.

What percentage of the purchase will the lender cover? How new do the cars need to be to satisfy the loan requirement? Are there mileage restrictions? Do the financing terms vary depending on vehicle types?

For example, let’s say you want to purchase a fleet of cars for your sales representatives. The average term for auto loans is five to six years. You probably want new automobiles with good gas mileage to save on fuel costs. And, if there’s a mileage restriction, you may want to examine how far your reps are driving within their territories and modify your needs accordingly.

Another thing to consider is the wear and tear on your vehicles. Will these cars still be in good shape after five years of use? If they are new, it is likely you’ll keep getting more use out of them for a while after they are paid off. Many lenders will not finance used cars because their value depreciates too much beyond the collateral value within five years.

Business owners should make sure their commercial vehicles would not need to be upgraded or replaced after they are paid off. This is another aspect of the investment to consider. You want a working fleet of cars that are paid off and operating effectively at the end of your loan term.

As mentioned above, in some cases business owners may want to lease vehicles. You can ask your lender about the differences between auto loans for purchasing versus leasing. There are tax benefits for both. Consult with your accountant prior to applying for an auto loan.

How to apply for a business auto loan

When you’re ready to apply for a business auto loan, get your paperwork ready! You will need:

  • Proof of business ownership (business license, etc.)
  • Your tax identification number
  • Tax returns (business and personal)
  • Bank statements
  • Down payment or deposit

Next, make sure you have some money to put down for a deposit. In some cases you will not need to put cash down, but in other cases you may need 20% of the purchase price for the vehicle.

If your business is well established, you will probably have some cash on hand for the deposit. However, some business owners may be required to use a personal guarantee, which means if the business fails, the business owner would still repay the lender with personal funds. No matter which option you must do, you are likely to get an auto loan if you have a good business history and personal credit score.

Lastly, choose a lender that can help you finance your commercial vehicles in a way that suits your budget and operations. If you have bad credit, but a strong business history, lenders may still finance an auto loan for you at a higher interest rate than someone with good credit.

Ultimately the right lender will work with your situation to keep your business running efficiently with the commercial vehicles you need to grow.